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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____________________ to _______________________

 

Commission File Number 0-20797

 

RUSH ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

 

Texas

74-1733016

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

555 I.H. 35 South, Suite 500

New Braunfels, Texas 78130

(Address of principal executive offices)

(Zip Code)

 

(830) 302-5200

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑                  No ☐

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑                  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer ☐

Non-accelerated filer ☐

Smaller Reporting company
       
     

Emerging growth company 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                             

Yes                   No ☑

 

Indicated below is the number of shares outstanding of each of the issuer’s classes of common stock, as of May 3, 2024.

 

   

Number of Shares

Title of Class

 

Outstanding

Class A Common Stock, $.01 Par Value

  61,900,735

Class A Common Stock, $.01 Par Value

  16,713,423

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.01 par value

RUSHA

NASDAQ Global Select Market

Class B Common Stock, $0.01 par value

RUSHB

NASDAQ Global Select Market

 

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

 

INDEX

 

PART I.  FINANCIAL INFORMATION

Page

       
 

Item 1.

Financial Statements

 
       
    Consolidated Balance Sheets - March 31, 2024 (unaudited) and December 31, 2023

3

       
    Consolidated Statements of Income - For the Three Months Ended March 31, 2024 and 2023 (unaudited)

4

       
    Consolidated Statements of Comprehensive Income - For the Three Months Ended March 31, 2024 and 2023 (unaudited)

5

       
    Consolidated Statements of Shareholders’ Equity – For the Three Months Ended March 31, 2024 and 2023 (unaudited) 

6

       
    Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 2024 and 2023 (unaudited)

7

       
   

Notes to Consolidated Financial Statements (unaudited)

8

       
 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

       
 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk 

23

       
 

Item 4.

Controls and Procedures

24

       

PART II.  OTHER INFORMATION

 
       
 

Item 1.

Legal Proceedings

24

       
 

Item 1A.

Risk Factors

24

       
 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

24

       
 

Item 3.

Defaults Upon Senior Securities

25

       
 

Item 4.

Mine Safety Disclosures

25

       
 

Item 5.

Other Information

25

       
 

Item 6.

Exhibits

25

       

SIGNATURES

26

 

 

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements.

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Shares)

 

   

March 31,

   

December 31,

 
   

2024

   

2023

 
   

(unaudited)

         

Assets

               

Current assets:

               

Cash, cash equivalents and restricted cash

  $ 155,905     $ 183,725  

Accounts receivable, net

    303,444       259,353  

Note receivable, affiliate

    5,500        

Inventories, net

    2,031,775       1,801,447  

Prepaid expenses and other

    20,377       15,779  

Total current assets

    2,517,001       2,260,304  

Property and equipment, net

    1,501,066       1,488,086  

Operating lease right-of-use assets, net

    119,329       120,162  

Goodwill, net

    419,728       420,708  

Other assets, net

    71,882       74,981  

Total assets

  $ 4,629,006     $ 4,364,241  
                 

Liabilities and shareholders equity

               

Current liabilities:

               

Floor plan notes payable

  $ 1,248,853     $ 1,139,744  

Current maturities of finance lease obligations

    38,210       36,119  

Current maturities of operating lease obligations

    16,716       17,438  

Trade accounts payable

    181,079       162,134  

Customer deposits

    127,400       145,326  

Accrued expenses

    145,071       172,549  

Total current liabilities

    1,757,329       1,673,310  

Long-term debt, net of current maturities

    524,450       414,002  

Finance lease obligations, net of current maturities

    99,394       97,617  

Operating lease obligations, net of current maturities

    104,600       104,514  

Other long-term liabilities

    28,788       24,811  

Deferred income taxes, net

    159,525       159,571  

Shareholders’ equity:

               

Preferred stock, par value $.01 per share; 1,000,000 shares authorized; 0 shares outstanding in 2024 and 2023

           

Common stock, par value $.01 per share; 105,000,000 Class A shares and 35,000,000 Class B shares authorized; 61,813,022 Class A shares and 16,715,277 Class B shares outstanding in 2024; and 61,461,281 Class A shares and 16,364,158 Class B shares outstanding in 2023

    815       806  

Additional paid-in capital

    556,001       542,046  

Treasury stock, at cost: 1,220,155 Class A shares and 1,731,162 Class B shares in 2024; and 1,092,142 Class A shares and 1,731,157 Class B shares in 2023

    (125,462 )     (119,835 )

Retained earnings

    1,508,202       1,450,025  

Accumulated other comprehensive income (loss)

    (4,054 )     (2,163 )

Total Rush Enterprises, Inc. shareholders’ equity

    1,935,502       1,870,879  

Noncontrolling interest

    19,418       19,537  

Total shareholders’ equity

    1,954,920       1,890,416  

Total liabilities and shareholders equity

  $ 4,629,006     $ 4,364,241  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

   

Three Months Ended

March 31,

 
   

2024

   

2023

 
                 

Revenues

               

New and used commercial vehicle sales

  $ 1,123,319     $ 1,161,725  

Aftermarket products and services sales

    649,196       648,226  

Lease and rental sales

    87,921       86,666  

Finance and insurance

    5,394       6,571  

Other

    6,169       8,579  

Total revenue

    1,871,999       1,911,767  

Cost of products sold

               

New and used commercial vehicle sales

    1,006,100       1,050,365  

Aftermarket products and services sales

    412,254       402,155  

Lease and rental sales

    63,770       60,478  

Total cost of products sold

    1,482,124       1,512,998  

Gross profit

    389,875       398,769  

Selling, general and administrative expense

    263,665       256,808  

Depreciation and amortization expense

    15,750       14,314  

Gain on sale of assets

    150       129  

Operating income

    110,610       127,776  

Other income, net

    177       2,347  

Interest expense, net

    17,973       10,983  

Income before taxes

    92,814       119,140  

Income tax provision

    21,325       28,350  

Net income

    71,489       90,790  

Less: Net income (loss) attributable to noncontrolling interest

    (119 )     335  

Net income attributable to Rush Enterprises, Inc.

  $ 71,608     $ 90,455  
                 

Net income attributable to Rush Enterprises, Inc. per share of common stock:

               

Basic

  $ 0.91     $ 1.10  

Diluted

  $ 0.88     $ 1.07  
                 

Weighted average shares outstanding:

               

Basic

    78,483       82,150  

Diluted

    81,454       84,846  
                 

Dividends declared per common share

  $ 0.17     $ 0.14  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

(Unaudited)

 

   

Three Months Ended

March 31,

 
   

2024

   

2023

 
                 

Net income

  $ 71,489     $ 90,790  

Other comprehensive income (loss), net of tax:

               

Foreign currency translation

    (1,891 )     232  

Other comprehensive income (loss) attributable to Rush Enterprises, Inc.

    (1,891 )     232  

Comprehensive income

  $ 69,598     $ 91,022  

Less: Comprehensive income (loss) attributable to noncontrolling interest

    (119 )     335  

Comprehensive income attributable to Rush Enterprises, Inc.

  $ 69,717     $ 90,687  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(In Thousands)

(Unaudited)

 

   

Common Stock

Shares

    $0.01    

Additional

                   

Accumulated

Other

   

Total

Rush

Enterprises,

Inc.

   

Non-

   

Total

 
   

Outstanding

    Par     Paid -In     Treasury     Retained     Comprehensive     Shareholders’     controlling     Shareholders’  
    Class A     Class B     Value     Capital     Stock     Earnings     Income (Loss)     Equity     Interest     Equity  

Balance, December 31, 2023

    61,461       16,364     $ 806     $ 542,046     $ (119,835 )   $ 1,450,025     $ (2,163 )   $ 1,870,879     $ 19,537     $ 1,890,416  

Stock options exercised and stock awards

    383             4       5,997                         6,001             6,001  

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

                      14,090                         14,090             14,090  

Vesting of restricted share awards

          351       4       (9,486 )                       (9,482 )           (9,482 )

Issuance of common stock under employee stock purchase plan

    97             1       3,354                         3,355             3.355  

Common stock repurchases

    (128 )                       (5,627 )                 (5,627 )           (5,627 )

Cash dividends declared on Class A common stock

                                  (10,467 )           (10,467 )           (10,467 )

Cash dividends declared on Class B common stock

                                  (2,964 )           (2,964 )           (2,964 )

Foreign currency translation adjustment

                                        (1,891 )     (1,891 )           (1,891 )

Net income

                                  71,608             71,608       (119 )     71,489  

Balance, March 31, 2024

    61,813       16,715     $ 815     $ 556,001     $ (125,462 )   $ 1,508,202     $ (4,054 )   $ 1,935,502     $ 19,418     $ 1,954,920  

 

   

Common Stock

Shares

    $0.01    

Additional

                   

Accumulated

Other

   

Total

Rush

Enterprises,

Inc.

    Non-    

Total

 
    Outstanding     Par     Paid -In     Treasury     Retained     Comprehensive     Shareholders’     controlling     Shareholders’  
    Class A     Class B     Value     Capital     Stock     Earnings     Income (Loss)     Equity     Interest     Equity  

Balance, December 31, 2022

    63,518       18,125     $ 572     $ 500,642     $ (130,930 )   $ 1,378,337     $ (4,130 )   $ 1,744,491     $ 18,531     $ 1,763,022  

Stock options exercised and stock awards

    228             2       3,412                         3,414             3,414  

Stock-based compensation related to stock options, restricted shares and employee stock purchase plan

                      13,080                         13,080             13,080  

Vesting of restricted share awards

          422       3       (6,964 )                       (6,961 )           (6,961 )

Issuance of common stock under employee stock purchase plan

    102                   2,828                         2,828             2,828  

Common stock repurchases

    (623 )     (84 )                 (25,280 )                 (25,280 )           (25,280 )

Cash dividends declared on Class A common stock

                                  (8,897 )           (8,897 )           (8,897 )

Cash dividends declared on Class B common stock

                                  (2,692 )           (2,692 )           (2,692 )

Foreign currency translation adjustment

                                        232       232             232  

Net income

                                  90,455             90,455       335       90,790  

Balance, March 31, 2023

    63,225       18,463     $ 577     $ 512,998     $ (156,210 )   $ 1,457,203     $ (3,898 )   $ 1,810,670     $ 18,866     $ 1,829,536  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

 

Cash flows from operating activities:

               

Net income

  $ 71,489     $ 90,790  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

    56,834       53,896  

Gain on sale of property and equipment

    (150 )     (129 )

Stock-based compensation expense related to employee stock options and employee stock purchases

    14,090       13,080  

Provision for deferred income tax expense

    71       3,165  

Change in accounts receivable, net

    (49,933 )     (8,972 )

Change in inventories, net

    (215,506 )     (52,845 )

Change in prepaid expenses and other, net

    (4,623 )     (2,408 )

Change in trade accounts payable

    17,446       27,130  

Change in customer deposits

    (17,705 )     (15,892 )

Change in accrued expenses

    (26,863 )     (14,699 )

Other, net

    (203 )     (650 )

Net cash (used) provided by operating activities

    (155,053 )     92,466  

Cash flows from investing activities:

               

Acquisition of property and equipment

    (79,136 )     (90,446 )

Proceeds from the sale of property and equipment

    3,035       122  

Other

    (6,913 )     (5,190 )

Net cash used in investing activities

    (69,188 )     (95,514 )

Cash flows from financing activities:

               

Draws on floor plan notes payable – non-trade, net

    110,172       82,642  
Proceeds from long-term debt     698,754       257,705  

Principal payments on long-term debt

    (587,249 )     (270,793 )

Principal payments on finance lease obligations

    (5,605 )     (4,471 )

Proceeds from issuance of shares related to employee stock options and employee stock purchases

    9,360       6,245  

Taxes paid related to net share settlement of equity awards

    (9,486 )     (6,964 )

Payments of cash dividends

    (13,868 )     (12,062 )

Common stock repurchased

    (5,627 )     (24,008 )

Net cash provided by financing activities

    196,451       28,294  

Net (decrease) increase in cash, cash equivalents and restricted cash

    (27,790 )     25,246  

Effect of exchange rate on cash

    (30 )     204  

Cash, cash equivalents and restricted cash, beginning of period

    183,725       200,842  

Cash, cash equivalents and restricted cash, end of period

  $ 155,905     $ 226,292  

Supplemental disclosure of cash flow information:

               

Cash paid during the period for:

               

Interest

  $ 18,630     $ 11,712  

Income taxes, net of refunds

  $ 518     $ 374  

Noncash investing and financing activities:

               

Assets acquired under finance leases

  $ 12,140     $ 16,178  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

RUSH ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1 Principles of Consolidation and Basis of Presentation

 

The interim consolidated financial statements included herein have been prepared by Rush Enterprises, Inc. and its subsidiaries (collectively referred to as the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All adjustments have been made to the accompanying interim consolidated financial statements, which, in the opinion of the Company’s management, are necessary for a fair presentation of its operating results. All adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is recommended that these interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Results of operations for interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal year.

 

Restricted Cash

 

Restricted cash consists of deposits for the statutory restriction on cash related to the Company’s captive insurance company of $3.1 million as of March 31, 2024.

 

Stock Split

 

On July 25, 2023, the Board of Directors of the Company declared a 3-for-2 stock split of the Company’s Class A common stock and Class B common stock, which was effected in the form of a stock dividend. On August 28, 2023, the Company distributed one additional share of stock for every two shares of Class A common stock, par value $0.01 per share, and Class B common stock, par value $0.01 per share, held by shareholders of record as of August 7, 2023. All share and per share data in this Form 10-Q have been adjusted and restated to reflect the stock split as if it occurred on the first day of the earliest period presented.

 

Foreign Currency Transactions

 

The functional currency of the Company’s foreign subsidiary, Rush Truck Centres of Canada Limited (“RTC Canada”), is the local currency, the Canadian dollar. Results of operations for RTC Canada are translated to USD using the average exchange rate on a monthly basis during each quarter. The assets and liabilities of RTC Canada are translated into USD using the exchange rate in effect on the balance sheet date. The related translation adjustments are recorded as a separate component of the Company’s Consolidated Statements of Shareholders’ Equity in accumulated other comprehensive income (loss).

 

 

2 Commitments and Contingencies

 

From time to time, the Company is involved in litigation arising out of its operations in the ordinary course of business. The Company maintains liability insurance, through self-insurance and third-party excess insurance, including product liability coverage, in amounts deemed adequate by management. However, an uninsured or partially insured claim, or claim for which indemnification is not available, could have a material adverse effect on the Company’s financial condition or results of operations. As of March 31, 2024, the Company believes that there are no pending claims or litigation, individually or in the aggregate, that are reasonably likely to have a material adverse effect on its financial position or results of operations.  However, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations for the fiscal period in which such resolution occurred.

 

 

 

3 Earnings Per Share

 

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share information):

 

   

Three Months Ended

March 31,

 
   

2024

   

2023

 

Numerator:

               

Numerator for basic and diluted earnings per share – Net income available to common shareholders

  $ 71,608     $ 90,455  

Denominator:

               

Denominator for basic earnings per share – weighted average shares outstanding

    78,483       82,150  

Effect of dilutive securities–

               

Employee and director stock options and restricted share awards

    2,971       2,696  

Denominator for diluted earnings per share – adjusted weighted average shares outstanding and assumed conversions

    81,454       84,846  

Basic earnings per common share

  $ 0.91     $ 1.10  

Diluted earnings per common share and common share equivalents

  $ 0.88     $ 1.07  

 

Options to purchase shares of common stock that were outstanding for the three months ended March 31, 2024 and 2023 that were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive are as follows (in thousands):

 

   

Three Months Ended

March 31,

 
   

2024

   

2023

 

Weighted average anti-dilutive options

    317       1,279  

 

 

4 Stock Options and Restricted Stock Awards

 

Valuation and Expense Information

 

The Company accounts for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) 718-10, Compensation Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards made to the Company’s employees and directors, including employee stock options, restricted stock awards and employee stock purchases related to the Employee Stock Purchase Plan, based on estimated fair values.

 

Stock-based compensation expense, calculated using the Black-Scholes option-pricing model for employee stock options, and included in selling, general and administrative expense, was $14.1 million for the three months ended March 31, 2024, and $13.1 million for the three months ended March 31, 2023.

 

As of March 31, 2024, the Company had $17.6 million of unrecognized compensation expense related to non-vested employee stock options to be recognized over a weighted-average period of 2.5 years and $22.8 million of unrecognized compensation cost related to non-vested restricted stock awards to be recognized over a weighted-average period of 1.6 years.

 

 

5 Financial Instruments and Fair Value

 

The Company measures certain financial assets and liabilities at fair value on a recurring basis. Financial instruments consist primarily of cash, accounts receivable, accounts payable and floor plan notes payable. The carrying values of the Company’s financial instruments approximate fair value due either to their short-term nature or existence of variable interest rates, which approximate market rates. Certain methods and assumptions were used by the Company in estimating the fair value of financial instruments as of March 31, 2024, and December 31, 2023. The carrying value of current assets and current liabilities approximates the fair value due to the short maturity of these items.

 

The fair value of the Company’s long-term debt is based on secondary market indicators. Because the Company’s debt is not quoted, estimates are based on each obligation’s characteristics, including remaining maturities, variable interest rate, credit rating, collateral and liquidity. Accordingly, the Company concluded that the valuation measurement inputs of its long-term debt represent, at its lowest level, current market interest rates available to the Company for similar debt and the Company’s current credit standing. Thus, the carrying amount of such debt approximates fair value.

 

 

 

6 Segment Information

 

The Company currently has one reportable business segment - the Truck Segment. The Truck Segment includes the Company’s operation of a network of commercial vehicle dealerships throughout the United States and Ontario, Canada that provide an integrated one-stop source for the commercial vehicle needs of its customers, including retail sales of new and used commercial vehicles; aftermarket parts, service and collision center facilities; and financial services, including the financing of new and used commercial vehicle purchases, insurance products and truck leasing and rentals. The commercial vehicle dealerships are deemed a single reporting unit because they have similar economic characteristics. The Company’s chief operating decision maker considers the entire Truck Segment, not individual dealerships or departments within its dealerships, when making decisions about resources to be allocated to the segment and assessing its performance.

 

The Company also has revenues attributable to three other operating segments. These segments include a retail tire company, an insurance agency and a guest ranch operation and are included in the All Other column below. None of these segments has ever met any of the quantitative thresholds for determining reportable segments.

 

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on income before income taxes, not including extraordinary items.

 

The following table contains summarized information about reportable segment revenues, segment income or loss from continuing operations and segment assets for the periods ended March 31, 2024 and 2023 (in thousands):

 

   

Truck

Segment

   

All Other

   

Totals

 
                         

As of and for the three months ended March 31, 2024

                       

Revenues from external customers

  $ 1,867,968     $ 4,031     $ 1,871,999  

Segment operating income (loss)

    110,708       (98 )     110,610  

Segment income (loss) before taxes

    92,912       (98 )     92,814  

Segment assets

    4,570,652       58,354       4,629,006  
                         

As of and for the three months ended March 31, 2023

                       

Revenues from external customers

  $ 1,907,941     $ 3,826     $ 1,911,767  

Segment operating income

    127,563       213       127,776  

Segment income before taxes

    118,927       213       119,140  

Segment assets

    3,913,928       55,624       3,969,552  

 

 

7 Income Taxes

 

The Company had unrecognized income tax benefits totaling $6.7 million as a component of accrued liabilities as of March 31, 2024 and December 31, 2023, the total of which, if recognized, would impact the Company’s effective tax rate. An unfavorable settlement would require a charge to income tax expense and a favorable resolution would be recognized as a reduction to income tax expense. The Company recognizes interest accrued related to unrecognized tax benefits in income tax expense. The Company had approximately $389,000 accrued for the payment of interest as of March 31, 2024 and December 31, 2023. No amounts were accrued for penalties.

 

The Company does not anticipate a significant change in the amount of unrecognized tax benefits in the next 12 months. As of December 31, 2023, the tax years ended December 31, 2020 through 2023 remained subject to audit by federal tax authorities and the tax years ended December 31, 2019 through 2023, remained subject to audit by state tax authorities.

 

 

8 Revenue

 

The Company’s non-lease and rental revenues are primarily generated from the sale of finished products to customers. Those sales predominantly contain a single delivery element and revenue from such sales is recognized when the customer obtains control, which is typically when the finished product is delivered to the customer. The Company’s material revenue streams have been identified as the following: the sale of new and used commercial vehicles, the arrangement of associated commercial vehicle financing and insurance contracts, the performance of commercial vehicle repair services and the sale of commercial vehicle parts. Taxes collected from customers relating to product sales and remitted to governmental authorities are excluded from revenues.

 

 

The following table summarizes the Company’s disaggregated revenue by revenue source, excluding lease and rental revenue, for the three months ended March 31, 2024 and 2023 (in thousands):

 

   

Three Months Ended

March 31,

 
   

2024

   

2023

 

Commercial vehicle sales revenue

  $ 1,123,319     $ 1,161,725  

Parts revenue

    373,426       384,418  

Commercial vehicle repair service revenue

    275,770       263,808  

Finance revenue

    2,074       3,508  

Insurance revenue

    3,320       3,063  

Other revenue

    6,169       8,579  

Total

  $ 1,784,078     $ 1,825,101  

 

All of the Company's performance obligations and associated revenues are generally transferred to customers at a point in time. The Company did not have any material contract assets or contract liabilities on the balance sheet as of March 31, 2024. Revenues related to commercial vehicle sales, parts sales, commercial vehicle repair service, finance and most other revenues are related to the Truck Segment.

 

 

9 Leases

 

Lease of Vehicles as Lessor

 

The Company primarily leases commercial vehicles that the Company owns to customers primarily over periods of one to ten years. The Company does not separate lease and nonlease components. Nonlease components typically consist of maintenance and licensing for the commercial vehicle. The variable nonlease components are generally based on mileage. Some leases contain an option for the lessee to purchase the commercial vehicle at the end of the lease term.

 

The Company’s policy is to depreciate its lease and rental fleet using a straight-line method over each customer’s contractual lease term. The lease unit is depreciated to a residual value that approximates fair value at the expiration of the lease term. This policy results in the Company realizing reasonable gross margins while the unit is in service and a corresponding gain or loss on sale when the unit is sold at the end of the lease term.

 

Lease and rental income during the three months ended March 31, 2024 and March 31, 2023 consisted of the following (in thousands):

 

   

Three Months Ended

March 31,

 
   

2024

   

2023

 

Minimum rental payments

  $ 76,868     $ 75,160  

Nonlease payments

    11,053       11,506  

Total

  $ 87,921     $ 86,666  

 

 

10 Accumulated Other Comprehensive Income (Loss)

 

The following table shows the components of accumulated other comprehensive income (loss) (in thousands):

 

Balance as of December 31, 2023

  $ (2,163 )

Foreign currency translation adjustment

    (1,891 )

Balance as of March 31, 2024

  $ (4,054 )

 

The functional currency of the Company’s foreign subsidiary, RTC Canada, is its local currency. Results of operations of RTC Canada are translated into USD using the average exchange rates monthly during the year. The assets and liabilities of RTC Canada are translated into USD using the exchange rates in effect on the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive loss and the statement of comprehensive income.

 

 

 

11 Accounts Receivable and Allowance for Credit Losses

 

The Company establishes an allowance for credit losses to present the net amount of accounts receivable expected to be collected. Under Accounting Standards Update No. 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Company is required to remeasure expected credit losses for financial instruments held on the reporting date based on historical experience, current conditions, and reasonable forecasts.

 

Accounts receivable consists primarily of commercial vehicle sales receivables, manufacturers’ receivables and leasing, parts and service sales receivables and other trade receivables. The Company maintains an allowance for credit losses based on the probability of default, its historical rate of losses, aging and current economic conditions. The Company writes off account balances when it has exhausted reasonable collection efforts and determined that the likelihood of collection is remote. These write-offs are charged against the allowance for credit losses.

 

The following table summarizes the changes in the allowance for credit losses (in thousands):

 

   

Balance

December 31,

2023

   

Provision For

the Three

Months Ended

March 31,

2024

   

Write offs

Against

Allowance,

net of

Recoveries

   

Balance

March 31,

2024

 
                                 

Commercial vehicle receivables

  $ 102     $     $ 57     $ 159  

Manufacturers’ receivables

    964       667       (644 )     987  

Leasing, parts and service receivables

    1,660       1,095       (864 )     1,891  

Other receivables

    1,079       5       (29 )     1,055  

Total

  $ 3,805     $ 1,767     $ (1,480 )   $ 4,092  

 

 

12 Acquisition

 

The following acquisition, unless otherwise noted, was considered a business combination accounted for under ASC 805 “Business Combinations.” Pro forma information is not included in accordance with ASC 805 since the acquisition was not considered material.

 

On December 4, 2023, the Company acquired certain assets of Freeway Ford Truck Sales, Inc., which included real estate and a Ford commercial vehicle franchise in Chicago, Illinois, along with commercial vehicle and parts inventory. The transaction was valued at approximately $16.3 million, with the purchase price paid in cash.

 

 

 

ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

 

Certain statements contained in this Form 10-Q (or otherwise made by the Company or on the Companys behalf from time to time in other reports, filings with the Securities and Exchange Commission (SEC), news releases, conferences, website postings or otherwise) that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Exchange Act of 1934, as amended (the Exchange Act), notwithstanding that such statements are not specifically identified. Forward-looking statements include statements about the Companys financial position, business strategy and plans and objectives of management of the Company for future operations. These forward-looking statements reflect the best judgments of the Company about the future events and trends based on the beliefs of the Companys management as well as assumptions made by and information currently available to the Companys management. Use of the words may, should, continue, plan, potential, anticipate, believe, estimate, expect and intend and words or phrases of similar import, as they relate to the Company or its subsidiaries or Company management, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Forward-looking statements reflect our current view of the Company with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in such statements. Please read Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2023, for a discussion of certain of those risks. Other unknown or unpredictable factors could also have a material adverse effect on future results. Although the Company believes that its expectations are reasonable as of the date of this Form 10-Q, it can give no assurance that such expectations will prove to be correct. The Company does not intend to update or revise any forward-looking statements unless securities laws require it to do so, and the Company undertakes no obligation to publicly release any revisions to forward-looking statements, whether because of new information, future events or otherwise.

 

The following comments should be read in conjunction with the Company’s consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

 

Note Regarding Trademarks Commonly Used in the Companys Filings

 

Peterbilt® is a registered trademark of Peterbilt Motors Company. PACCAR® is a registered trademark of PACCAR, Inc. PacLease® is a registered trademark of PACCAR Leasing Corporation. Navistar® is a registered trademark of Navistar International, Inc. International® is a registered trademark of Navistar, Inc. Idealease is a registered trademark of Idealease, Inc. aka Idealease of North America, Inc. Blue Bird® is a registered trademark of Blue Bird Investment Corporation. IC Bus® is a registered trademark of IC Bus, LLC. Hino® is a registered trademark of Hino Motors, Ltd. Isuzu® is a registered trademark of Isuzu Motors Limited. Ford® is a registered trademark of Ford Motor Company. Dennis Eagle® is a registered trademark of Dennis Eagle Limited. Cummins® is a registered trademark of Cummins, Inc. This report contains additional trade names or trademarks of other companies. Our use of such trade names or trademarks should not imply any endorsement or relationship with such companies.

 

General

 

Rush Enterprises, Inc. was incorporated in Texas in 1965 and consists of one reportable segment, the Truck Segment, and conducts business through its subsidiaries. Our principal offices are located at 555 IH 35 South, Suite 500, New Braunfels, Texas 78130.

 

We are a full-service, integrated retailer of commercial vehicles and related services. The Truck Segment includes our operation of a network of commercial vehicle dealerships under the name “Rush Truck Centers.” Rush Truck Centers primarily sell commercial vehicles manufactured by Peterbilt, International, Hino, Ford, Isuzu, IC Bus, Blue Bird and Dennis Eagle. Through our strategically located network of Rush Truck Centers, we provide one-stop service for the needs of our commercial vehicle customers, including retail sales of new and used commercial vehicles, aftermarket parts sales, service and repair facilities, financing, leasing and rental, and insurance products.

 

Our Rush Truck Centers are principally located in high traffic areas throughout the United States and Ontario, Canada. Since commencing operations as a Peterbilt heavy-duty truck dealer in 1966, we have grown to operate over 125 franchised Rush Truck Centers in 22 states. In 2019, we purchased a 50% equity interest in an entity in Canada, Rush Truck Centres of Canada Limited (“RTC Canada”) and on May 2, 2022, we purchased an additional 30% equity interest in RTC Canada that increased our equity interest to 80%. RTC Canada currently owns and operates 14 International dealership locations in Ontario. Prior to acquiring the additional 30%, we accounted for the equity interest in RTC Canada using the equity method of accounting. Now, the operating results of RTC Canada are consolidated in the Consolidated Statements of Operations, the Statements of Comprehensive Income, the Consolidated Balance Sheets and commercial vehicle unit sales data as of May 2, 2022. 

 

 

Our business strategy consists of providing solutions to the commercial vehicle industry through our network of commercial vehicle dealerships. We offer an integrated approach to meeting customer needs by providing service, parts and collision repairs in addition to new and used commercial vehicle sales and leasing, plus financial services, vehicle upfitting, CNG fuel systems through our joint venture with Cummins and vehicle telematics products. We intend to continue to implement our business strategy, reinforce customer loyalty and remain a market leader by continuing to develop our Rush Truck Centers as we expand our product offerings and extend our dealership network through strategic acquisitions of new locations and opening new dealerships in our existing areas of operation to enable us to better serve our customers.

 

Outlook

 

A.C.T. Research Co., LLC (“A.C.T. Research”), a commercial vehicle industry data and forecasting service provider, currently forecasts new U.S. Class 8 retail truck sales to be 228,000 units in 2024, which would represent a 16.0% decrease compared to 2023.   As anticipated, our Class 8 new truck sales in the first quarter were down significantly from the same time period in 2023, due to the previously anticipated industry downturn in new Class 8 truck sales caused by new truck production having caught up to the pent-up market demand and persistent low freight rates and high interest rates. We expect our new Class 8 truck sales in the second quarter to be better than our results in the first quarter. However, we also expect that new U.S. Class 8 retail truck sales in the second half of 2024 will be less than in the first half of the year. We expect our U.S. market share of new Class 8 truck sales to range between 5.9% and 6.4% in 2024.  This market share percentage would result in the sale of approximately 13,500 to 14,500 new Class 8 trucks in 2024.  We expect to sell approximately 550 new Class 8 trucks in Canada in 2024.  

 

With respect to new U.S. Class 4 through 7 retail commercial vehicle sales, A.C.T. Research currently forecasts sales to be 262,000 units in 2024, which would represent a 3.7% increase compared to 2023. As we look forward, new Class 4 through 7 commercial vehicle production is still somewhat constrained, but we believe it will continue to improve, and we expect demand to remain steady as customers replace older equipment with new vehicles. Currently, we believe Class 4 through 7 commercial vehicle sales will improve in the second quarter compared to the first quarter and remain strong for the remainder of the year. We expect our U.S. market share of new Class 4 through 7 commercial vehicle sales to range between 5.2% and 5.5% in 2024.  This market share percentage would result in the sale of approximately 13,500 to 14,500 new Class 4 through 7 commercial vehicles in 2024.  We expect to sell approximately 500 new Class 5 through 7 commercial vehicles in Canada in 2024.

 

We expect to sell approximately 1,800 to 2,000 light-duty vehicles and approximately 6,500 to 7,500 used commercial vehicles in 2024, and we expect lease and rental revenue to increase approximately 3% during 2024, compared to 2023.

 

With respect to our parts, service, and collision center (collectively referred to herein as “Aftermarket Products and Services”) operations, we expect that the sluggish freight market, persistent inflation and high interest rates will continue to negatively impact our over-the-road customers, including both small carriers and larger fleets. In the second quarter of 2024, we expect demand for Aftermarket Parts and Services will remain consistent with the first quarter. We believe that the current freight recession will continue to negatively impact our customers until at least late 2024. Despite the challenging operating environment, we believe that the strategic decisions we made several years ago to diversify our customer base and focus on supporting large national fleets, along with our current efforts to reduce expenses across all areas of the company, will allow us to successfully navigate this difficult market cycle. We also believe that our Aftermarket Products and Services revenues will increase between 1% and 5% in 2024, compared to 2023.

 

Critical Accounting Policies and Estimates

 

The preparation of our interim unaudited consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities in our interim unaudited consolidated financial statements and accompanying notes. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates, judgments and assumptions on an ongoing basis, and while we believe that our estimates, judgments and assumptions are reasonable, they are based upon information available at the time. Actual results might differ from these estimates under different assumptions or conditions.

 

Our significant accounting policies are discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Critical Accounting Policies and Estimates" in our Form 10-K. There were no material changes to our significant accounting policies.

 

 

Results of Operations

 

The following discussion and analysis include our historical results of operations for the three months ended March 31, 2024, and 2023.

 

The following table sets forth certain financial data as a percentage of total revenues for the periods indicated:

 

   

Three Months Ended

March 31,

 
   

2024

   

2023

 

Revenue

               

New and used commercial vehicle sales

    60.0 %     60.8 %

Aftermarket products and services sales

    34.7       33.9  

Lease and rental sales

    4.7       4.5  

Finance and insurance

    0.3       0.3  

Other

    0.3       0.5  

Total revenues

    100.0       100.0  

Cost of products sold

    79.2       79.1  

Gross profit

 

20.8

   

20.9

 

Selling, general and administrative

    14.1       13.4  

Depreciation and amortization

    0.8       0.8  

Gain on sale of assets

    0.0       0.0  

Operating income

    5.9       6.7  

Other income

    0.0       0.1  

Interest expense, net

    1.0       0.6  

Income before income taxes

    4.9       6.2  

Provision for income taxes

    1.1       1.5  

Net income

    3.8       4.7  

Net income attributable to noncontrolling interest

    0.0       0.0  

Net income attributable to Rush Enterprises, Inc.

    3.8 %     4.7 %

 

The following table sets forth for the periods indicated the percent of gross profit by revenue source:

 

   

Three Months Ended

March 31,

 
   

2024

   

2023

 

Gross Profit:

               

New and used commercial vehicle sales

    30.1 %     27.9 %

Aftermarket products and services sales

    60.8       61.7  

Lease and rental

    6.2       6.6  

Finance and insurance

    1.4       1.7  

Other

    1.5       2.1  

Total gross profit

    100.0 %     100.0 %

 

 

The following table sets forth the unit sales and revenues for new heavy-duty, new medium-duty, new light-duty and used commercial vehicles and our absorption ratio (revenue in millions):

 

   

Three Months Ended

 
   

March 31,

 
   

2024

   

2023

   

% Change

 

Vehicle unit sales:

                       

New heavy-duty vehicles

    3,494       4,365       -20.0  

New medium-duty vehicles

    3,331       3,038       9.6  

New light-duty vehicles

    456       504       -9.5  

Total new vehicle unit sales

    7,281       7,907       -7.9  

Used vehicles

    1,818       1,684       8.0  

Vehicle revenues:

                       

New heavy-duty vehicles

  $ 666.3     $ 736.7       -9.6  

New medium-duty vehicles

    333.6       286.9       16.3  

New light-duty vehicles

    27.5       28.0       -1.9  

Total new vehicle revenue

  $ 1,027.4     $ 1,051.6       -2.3  

Used vehicle revenue

  $ 88.0     $ 102.7       -14.3  

Other vehicle revenues:(1)

  $ 7.9     $ 7.4       6.8  

Absorption ratio:

    130.1 %     136.5 %     -4.7  

 

(1) Includes sales of truck bodies, trailers and other new equipment.

 

 

Key Performance Indicator

 

Absorption Ratio

 

Management uses several performance metrics to evaluate the performance of our commercial vehicle dealerships and considers Rush Truck Centers’ “absorption ratio” to be of critical importance. Our absorption ratio is calculated by dividing the gross profit from our Aftermarket Products and Services departments by the overhead expenses of all of a dealership’s departments, except for the selling expenses of the new and used commercial vehicle departments and carrying costs of new and used commercial vehicle inventory. When 100% absorption is achieved, all of the gross profit from the sale of a commercial vehicle, after sales commissions and inventory carrying costs, directly impacts operating profit. Our commercial vehicle dealerships achieved a 130.1% absorption ratio for the first quarter of 2024, compared to a 136.5% absorption ratio for the first quarter of 2023.

 

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

 

Revenues

 

Total revenues decreased $39.8 million, or 2.1%, in the first quarter of 2024, compared to the first quarter of 2023. This decrease was primarily the result of decreased demand for new Class 8 trucks and high interest rates and low freight rates that are negatively impacting our over-the-road customers, our largest customer segment.

 

Our Aftermarket Products and Services revenues totaled $649.2 million in the first quarter of 2024, up 0.1% from the first quarter of 2023. The slight increase in Aftermarket Parts and Services revenues was related to the continued moderating of inflation and challenging economic conditions that are negatively impacting our over-the-road customers.

 

Revenues from sales of new and used commercial vehicles decreased $38.4 million, or 3.3%, in the first quarter of 2024, compared to the first quarter of 2023. The decrease in new commercial vehicle revenues was primarily a result of decreased demand for new Class 8 trucks caused by high interest rates and production recently catching up to the pent-up demand experienced over the last couple of years.

 

We sold 3,494 new Class 8 trucks in the first quarter of 2024, a 20.0% decrease compared to 4,365 new Class 8 trucks sold in the first quarter of 2023. The decrease in new Class 8 truck sales was primarily related to delayed deliveries to certain large fleet customers due to delays associated with body companies and decreased demand caused by high interest rates and production recently catching up to the pent-up demand experienced over the last couple of years. New U.S. Class 8 retail truck sales totaled 57,181 units in the first quarter of 2024, a decrease of 13.1% compared to the first quarter of 2023, according to ACT Research.

 

 

We sold 3,331 new Class 4 through 7 medium-duty commercial vehicles, including 386 buses, in the first quarter of 2024, a 9.6% increase compared to 3,038 new medium-duty commercial vehicles, including 332 buses, in the first quarter of 2023. The increase in our new Class 4 through 7 commercial vehicle sales in the first quarter was primarily related to increased production of medium-duty commercial vehicles by the manufacturers we represent. New U.S. Class 4 through 7 retail commercial vehicle sales totaled 59,786 units in the first quarter of 2024, up 6.5% compared to the first quarter of 2023, according to ACT Research.

 

We sold 456 light-duty vehicles in the first quarter of 2024, a 9.5% decrease compared to 504 light-duty vehicles sold in the first quarter of 2023.

 

We sold 1,818 used commercial vehicles in the first quarter of 2024, an 8.0% increase compared to 1,684 used commercial vehicles in the first quarter of 2023. We expect used commercial vehicle demand and values to remain low through 2024 due to high interest rates and anticipated low freight rates.

 

Commercial vehicle lease and rental revenues increased $1.2 million, or 1.4%, in the first quarter of 2024, compared to the first quarter of 2023. The slight increase in commercial vehicle lease and rental revenues was primarily due to the delivery of new leased vehicles, as manufacturers were able to increase production, which was partially offset by a slight decrease in rental utilization.

 

Finance and insurance revenues decreased $1.2 million, or 17.9%, in the first quarter of 2024, compared to the first quarter of 2023. This decrease is primarily due to the mix of purchasers of commercial vehicles.  During the first quarter of 2024, most of our sales were to larger fleets, which usually arrange their own financing. We are more likely to provide financing to owner-operators and smaller fleets, which comprised a smaller percentage of commercial vehicle sales during the first quarter of 2024. Finance and insurance revenues have limited direct costs and, therefore, contribute a disproportionate share of our operating profits.

 

Gross Profit

 

Gross profit decreased $8.9 million, or 2.2%, in the first quarter of 2024, compared to the first quarter of 2023. Gross profit as a percentage of sales decreased to 20.8% in the first quarter of 2024, from 20.9% in the first quarter of 2023.

 

Gross margins from our Aftermarket Products and Services operations decreased to 36.5% in the first quarter of 2024, from 38.0% in the first quarter of 2023. Gross profit for the Aftermarket Products and Services departments decreased to $236.9 million in the first quarter of 2024, from $246.1 million in the first quarter of 2023. This decrease is primarily related to continued moderating of inflation and softening demand due to difficult economic conditions impacting many of our customers. Historically, gross margins on parts sales range from 28% to 30% and gross margins on service and collision center operations range from 66% to 68%. Gross profits from parts sales represented 57.5% of total gross profit for Aftermarket Products and Services operations in the first quarter of 2024 and 61.4% in the first quarter of 2023. Service and collision center operations represented 42.5% of total gross profit for Aftermarket Products and Services operations in the first quarter of 2024 and 38.6% in the first quarter of 2023. We expect blended gross margins on Aftermarket Products and Services operations to range from 36.0% to 38.0% in 2024.

 

Gross margins on new Class 8 truck sales decreased to 9.7% in the first quarter of 2024, from 9.8% in the first quarter of 2023. In 2024, we expect overall gross margins from new heavy-duty truck sales of approximately 8.5% to 9.5%.

 

Gross margins on new Class 4 through 7 commercial vehicle sales increased to 9.3% in the first quarter of 2024, from 8.8% in the first quarter of 2023. This increase was primarily due to the mix of purchasers during the first quarter of 2024. For 2024, we expect overall gross margins from new medium-duty commercial vehicle sales of approximately 8.0% to 9.0%, but this will largely depend upon the mix of purchasers and types of vehicles sold.

 

Gross margins on used commercial vehicle sales increased to 21.6% in the first quarter of 2024, from 9.0% in the first quarter of 2023. This increase was primarily due to successful execution on our used truck inventory and sales strategy. We expect margins on used commercial vehicles to range between 15.0% and 20.0% in 2024. 

 

Gross margins from truck lease and rental sales decreased to 27.5% in the first quarter of 2024, from 30.2% in the first quarter of 2023. This decrease is primarily related to a decrease in rental utilization rates, which have returned to historical levels as new commercial vehicle production has normalized and rental customers have purchased or leased new commercial vehicles. We expect gross margins from lease and rental sales of approximately 28.0% to 30.0% during 2024. Our policy is to depreciate our lease and rental fleet using a straight-line method over each customer’s contractual lease term. The lease unit is depreciated to a residual value that approximates fair value at the expiration of the lease term. This policy results in us realizing reasonable gross margins while the unit is in service and a corresponding gain or loss on sale when the unit is sold at the end of the lease term.

 

 

Finance and insurance revenues and other income, as described above, have limited direct costs and, therefore, contribute a disproportionate share of gross profit.

 

Selling, General and Administrative Expenses

 

Selling, General and Administrative (“SG&A”) expenses increased $6.9 million, or 2.7%, in the first quarter of 2024, compared to the first quarter of 2023. This increase primarily resulted from increased personnel expense and other increased costs due to inflation, compared to the first quarter of 2023. SG&A expenses as a percentage of total revenues increased to 14.1% in the first quarter of 2024, from 13.4% in the first quarter of 2023. Annual SG&A expenses as a percentage of total revenues have ranged from approximately 12.4% to 14.4% over the last five years. In general, when new and used commercial vehicle revenues increase as a percentage of total revenues, SG&A expenses as a percentage of total revenues will be at the lower end of this range. For 2024, we expect SG&A expenses as a percentage of total revenues to range from 13.0% to 14.0%. For 2024, we expect the selling portion of SG&A expenses to be approximately 25.0% to 30.0% of new and used commercial vehicle gross profit.

 

Interest Expense, Net

 

Net interest expense increased $7.0 million, or 63.6%, in the first quarter of 2024, compared to the first quarter of 2023. This increase in interest expense is a result of the increase in inventory levels and rising interest rates on our variable rate debt compared to the first quarter of 2023. We expect net interest expense in 2024 to increase compared to 2023, primarily due to increased borrowings under our credit facilities and the interest related thereto, but the amount of the increase will depend on inventory levels, interest rate fluctuations and the amount of cash available to make prepayments on our floor plan arrangements. We expect that the amount of borrowings on our credit facilities will decline during the remainder of 2024 and that the net interest expense associated therewith will subside.

 

Income before Income Taxes

 

As a result of the factors described above, income before income taxes decreased $26.3 million, or 22.1%, in the first quarter of 2024, compared to the first quarter of 2023.

 

Income Taxes

 

Income taxes decreased $7.0 million, or 24.8%, in the first quarter of 2024, compared to the first quarter of 2023. We provided for taxes at a 23.0% effective rate in the first quarter of 2024 and 23.8% in the first quarter of 2023. We expect our effective tax rate to be approximately 24.0% to 25.0% of pretax income in 2024.

 

Liquidity and Capital Resources

 

Our short-term cash requirements are primarily for working capital, inventory financing, the renovation and expansion of existing facilities and the construction or purchase of new facilities. Historically, these cash requirements have been met through the retention of profits, borrowings under our floor plan arrangements and bank financings. As of March 31, 2024, we had working capital of approximately $758.8 million, including $155.9 million in cash, available to fund our operations. We believe that these funds, together with expected cash flows from operations, are sufficient to meet our operating requirements for at least the next twelve months. From time to time, we utilize our excess cash on hand to pay down our outstanding borrowings under various credit agreements. The resulting interest earned on the floor plan credit agreement with BMO Harris Bank N.A. (“BMO Harris”) (the “Floor Plan Credit Agreement”) is recognized as an offset to our interest expense.

 

We continually evaluate our liquidity and capital resources based upon: (i) our cash, cash equivalents and restricted cash on hand; (ii) the funds that we expect to generate through future operations; (iii) current and expected borrowing availability under our secured line of credit, working capital lines of credit available under certain of our credit agreements and our Floor Plan Credit Agreement; and (iv) the potential impact of our capital allocation strategy and any contemplated or pending future transactions, including, but not limited to, acquisitions, equity repurchases, dividends, or other capital expenditures. We believe we will have sufficient liquidity to meet our debt service and working capital requirements, commitments and contingencies, debt repayments, acquisitions, capital expenditures and any operating requirements for at least the next twelve months.

 

 

We have a secured line of credit that provides for a maximum borrowing of $20.0 million. There were no advances outstanding under this secured line of credit on March 31, 2024, however, $18.9 million was pledged to secure various letters of credit related to self-insurance products, leaving $1.1 million available for future borrowings as of March 31, 2024.

 

Our floor plan financing agreements and the credit agreement with Wells Fargo Bank, National Association the (“WF Credit Agreement”) require us to satisfy various financial ratios such as the leverage ratio, the asset coverage ratio and the fixed charge coverage ratio. As of March 31, 2024, we were in compliance with all debt covenants related to debt secured by lease and rental units, our floor plan credit agreements and the WF Credit Agreement. We do not anticipate any breach of these covenants in the foreseeable future.

 

We expect to purchase or lease commercial vehicles worth approximately $200.0 million to $225.0 million for our leasing operations during 2024, depending on customer demand. We also expect to make capital expenditures for the purchase of recurring items such as computers, shop tools and equipment and company vehicles of approximately $35.0 million to $40.0 million during 2024.

 

During the first quarter of 2024, we paid a cash dividend of $13.9 million. Additionally, on April 23, 2024, our Board of Directors declared a cash dividend of $0.17 per share of Class A and Class B common stock, to be paid on June 10, 2024, to all shareholders of record as of May 9, 2024. The total dividend disbursement is estimated at approximately $13.4 million. We expect to continue paying cash dividends on a quarterly basis. However, there is no assurance as to future dividends because the declaration and payment of such dividends is subject to the business judgment of our Board of Directors and will depend on historic and projected earnings, capital requirements, covenant compliance and financial conditions and such other factors as our Board of Directors deem relevant.

 

On December 6, 2023, we announced that our Board of Directors approved a new stock repurchase program authorizing management to repurchase, from time to time, up to an aggregate of $150.0 million of our shares of Class A common stock and/or Class B common stock. In connection with the adoption of the new stock repurchase plan, we terminated the prior stock repurchase plan, which was scheduled to expire on December 31, 2023. Repurchases, if any, will be made at times and in amounts as we deem appropriate and may be made through open market transactions at prevailing market prices, privately negotiated transactions or by other means in accordance with federal securities laws. The actual timing, number of shares and value of repurchases under the stock repurchase program will be determined by management at its discretion and will depend on a number of factors, including market conditions, stock price and other factors. As of March 31, 2024, we had repurchased $73.2 million of our shares of common stock under the current stock repurchase program, excluding federal excise tax. The current stock repurchase program expires on December 31, 2024, and may be suspended or discontinued at any time.

 

The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. We have reflected the applicable excise tax in treasury stock as part of the cost basis of the stock repurchased.

 

We anticipate funding the capital expenditures for the improvement and expansion of existing facilities and recurring expenses through our operating cash flows. We can fund the construction or purchase of new facilities through our operating cash flows or by financing.

 

We have no other material commitments for capital expenditures as of March 31, 2024. However, we will continue to purchase vehicles for our lease and rental operations and authorize capital expenditures for the improvement or expansion of our existing dealership facilities and construction or purchase of new facilities based on market opportunities.

 

Cash Flows

 

The following table summarizes our cash flows for the periods indicated (in thousands):

 

   

Three Months Ended March 31,

 
   

2024

   

2023

 

Net cash provided by (used in):

               

Operating activities

  $ (155,053 )   $ 92,466  

Investing activities

    (69,188 )     (95,514 )

Financing activities

    196,451       28,294  

Net (decrease) increase in cash

  $ (27,790 )   $ 25,246  

 

 

Cash Flows from Operating Activities

 

Cash flows from operating activities include net income adjusted for non-cash items and the effects of changes in working capital. During the first quarter of 2024, operating activities resulted in net cash used in by operations of $155.1 million. Net cash provided by operating activities primarily consisted of $71.5 million in net income, as well as non-cash adjustments related to depreciation and amortization of $56.8 million, and stock-based compensation of $14.1 million. Cash used by operating activities included an aggregate of $297.4 million net change in operating assets and liabilities. Included in the net change in operating assets and liabilities were cash inflows of $17.4 million from the increase in accounts payable, which was offset primarily by cash outflows of $215.5 million from the increase in inventories, $49.9 million from the increase in accounts receivable, $17.7 million from the decrease in customer deposits and $26.9 million from the increase in accrued expenses. Most of our commercial vehicle inventory is financed through our floor plan credit agreements.

 

During the first quarter of 2023, operating activities resulted in net cash provided by operations of $92.5 million. Net cash provided by operating activities primarily consisted of $90.8 million in net income, as well as non-cash adjustments related to depreciation and amortization of $53.9 million, deferred income tax provision of $3.2 million and stock-based compensation of $13.1 million. Cash provided by operating activities included an aggregate of $65.2 million net change in operating assets and liabilities. Included in the net change in operating assets and liabilities were primarily cash outflows of $9.0 million from the increase in accounts receivable, $52.8 million from the increase in inventory, $15.9 million from the decrease in customer deposits and $11.5 million from the decrease in accrued expenses, which were offset by cash inflows of $27.1 million from the net increase in accounts payable.

 

Cash Flows from Investing Activities

 

During the first quarter of 2024, cash used in investing activities was $69.2 million. Cash flows used in investing activities consist primarily of cash used for the acquisition of property and equipment. Acquisition of property and equipment totaled $79.1 million during the first three months of 2024 and consisted primarily of purchases of machinery and shop equipment, furniture and fixtures, real estate and facilities, improvements to our existing dealership facilities and $52.1 million for purchases of rental and lease vehicles for our rental and leasing operations.

 

During the first quarter of 2023, cash used in investing activities totaled $95.5 million. Cash flows used in investing activities consist primarily of cash used for the acquisition of property and equipment. Capital expenditures totaled $90.4 million during the first quarter of 2023 and consisted primarily of purchases of property and equipment, improvements to our existing dealership facilities and $75.2 million for purchases of rental and lease vehicles for the rental and leasing operations.

 

Cash Flows from Financing Activities

 

Cash flows from financing activities include borrowings and repayments of long-term debt and net proceeds of floor plan notes payable, non-trade.  During the first quarter of 2024, financing activities resulted in net cash provided by financing activities of $196.5 million, primarily related to $110.2 million from net draws on floor plan notes payable, non-trade, $698.8 million from borrowings of long-term debt and $9.4 million from the issuance of shares related to equity compensation plans. These cash inflows were offset by cash outflows of $592.9 million used for principal repayments of long-term debt and finance lease obligations, $5.6 million used for repurchases of common stock, $9.5 million for taxes paid related to net share settlement of equity awards and $13.9 million used for payment of cash dividends. 

 

During the first quarter of 2023, financing activities provided $28.3 million in net cash flow. Cash outflows were primarily related to $275.3 million used for principal repayments of long-term debt and finance lease obligations, $24.0 million used for the repurchase of our common stock and $12.1 million used for the payment of cash dividends. These cash outflows were offset by cash inflows related to borrowings of $257.7 million of long-term debt and $82.6 million used for net draws on floor plan (non-trade).

 

On September 14, 2021, we entered into the WF Credit Agreement with the lenders signatory thereto (the “WF Lenders”) and Wells Fargo Bank, National Association (“WF”), as Administrative Agent (in such capacity, the “WF Agent”). Pursuant to the terms of the WF Credit Agreement (as amended), the WF Lenders have agreed to make up to $175.0 million of revolving credit loans for certain of our capital expenditures, including commercial vehicle purchases for our Idealease leasing and rental fleet, and general working capital needs. We expect to use the revolving credit loans available under the WF Credit Agreement primarily for the purpose of purchasing commercial vehicles for our Idealease lease and rental fleet. We may borrow, repay and reborrow amounts pursuant to the WF Credit Agreement from time to time until the maturity date. Borrowings under the WF Credit Agreement bear interest per annum, payable on each interest payment date, as defined in the WF Credit Agreement, at (A) the daily SOFR plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio or (B) on or after the term SOFR transition date, the term SOFR plus (i) 1.25% or (ii) 1.5%, depending on our consolidated leverage ratio. The WF Credit Agreement expires on September 14, 2026, although, upon the occurrence and during the continuance of an event of default, the WF Agent has the right to, or upon the request of the required lenders must, terminate the commitments and declare all outstanding principal and interest due and payable. We may terminate the commitments at any time. On March 31, 2024, we had approximately $174.7 million outstanding under the WF Credit Agreement.

 

 

On November 1, 2023, the Company entered into that certain Amended and Restated Inventory Financing and Purchase Money Security Agreement with PACCAR Leasing Company (“PLC”), a division of PACCAR Financial Corp. (the “PLC Agreement”).  Pursuant to the terms of the PLC Agreement, PLC agreed to make up to $300.0 million of revolving credit loans to finance certain of our capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through our PacLease franchises. On April 9, 2024, the PLC agreement was amended to increase the total loan commitment to $375.0 million. We may borrow, repay and reborrow amounts pursuant to the PLC Agreement from time to time until the maturity date, provided, however, that the outstanding principal amount on any date shall not exceed the borrowing base.  In addition, we must maintain a minimum balance of $190.0 million. Advances under the PLC Agreement bear interest per annum, payable on the fifth day of the following month, at our option, at either (A) the prime rate, minus 1.95%, provided that the floating rate of interest is subject to a floor of 0%, or (B) a fixed rate, to be determined between us and PLC in each instance of borrowing at a fixed rate. The PLC Agreement expires on December 1, 2025, although either party has the right to terminate the PLC Agreement at any time upon 180 days written notice.  On March 31, 2024, we had approximately $300.0 million outstanding under the PLC Agreement. 

 

Most of our commercial vehicle purchases are made on terms requiring payment to the manufacturer within 15 to 60 days or less from the date the commercial vehicles are invoiced from the factory.  Navistar Financial Corporation and Peterbilt offer trade terms that provide an interest-free inventory stocking period for certain new commercial vehicles.  This interest-free period is generally 15 to 60 days.  If the commercial vehicle is not sold within the interest-free period, we finance the commercial vehicle under the Floor Plan Credit Agreement.  On September 14, 2021, we entered into the Floor Plan Credit Agreement with BMO Harris and the lenders signatory thereto.  The Floor Plan Credit Agreement includes an aggregate loan commitment of $1.0 billion.  Prior to June 1, 2023, borrowings under the Floor Plan Credit Agreement bore interest at an annual rate equal to (A) the greater of (i) zero and (ii) one month LIBOR, determined on the last day of the prior month, plus (B) 1.10% and were payable monthly.  On May 31, 2023, we entered into the First Amendment to the Floor Plan Credit Agreement that changed the benchmark interest rate to Term SOFR, as defined in the amendment.  Effective June 1, 2023, borrowings under the Floor Plan Credit Agreement bear interest per annum, payable monthly, at (A) the greater of (i) zero and (ii) Term SOFR, plus (B) 1.20%.  Borrowings under the Floor Plan Credit Agreement for the purchase of used inventory are limited to $150.0 million and loans for working capital purposes are limited to $200.0 million.  The Floor Plan Credit Agreement expires September 14, 2026, although BMO Harris has the right to terminate at any time upon 360 days written notice and we may terminate at any time, subject to specified limited exceptions.  On March 31, 2024, we had approximately $1.0 billion outstanding under the Floor Plan Credit Agreement.  The average daily outstanding borrowings under the Floor Plan Credit Agreement were $958.3 million during the first three months ended March 31, 2024.  We utilize our excess cash on hand to pay down our outstanding borrowings under the Floor Plan Credit Agreement, and the resulting interest earned is recognized as an offset to our gross interest expense under the Floor Plan Credit Agreement.

 

On May 31, 2022, RTC Canada entered into that certain BMO Revolving Lease and Rental Credit Agreement (the “RTC Canada Revolving Credit Agreement”) with BMO. Pursuant to the terms of the RTC Canada Revolving Credit Agreement, BMO agreed to make up to $120.0 million CAD of revolving credit loans to finance certain of RTC Canada’s capital expenditures, including commercial vehicle purchases and other equipment to be leased or rented through RTC Canada’s Idealease franchise, with an additional $20.0 million CAD available upon the request of RTC Canada and consent of BMO. Advances under the RTC Canada Revolving Credit Agreement bear interest per annum, payable on the first business day of each calendar month, at the CDOR, plus 1.35%. The RTC Canada Revolving Credit Agreement expires September 14, 2026. On March 31, 2024, we had approximately $67.4 million CAD outstanding under the RTC Canada Revolving Credit Agreement.

 

On July 15, 2022, RTC Canada entered into the RTC Canada Floor Plan Agreement with BMO. Pursuant to the terms of the Agreement, BMO agreed to make up to $116.7 million CAD of revolving credit loans to finance RTC Canada’s purchase of new and used vehicle inventory. Loans to purchase used vehicle inventory are limited to twenty percent (20%) of the credit limit available at such time. RTC Canada may borrow, repay and reborrow loans from time to time until the maturity date, provided, however, that the outstanding principal amount on any date shall not exceed the credit limits set forth above with respect to new and used vehicles. Prior to June 1, 2023, advances under the RTC Canada Floor Plan Agreement bore interest per annum, payable on the first business day of each calendar month, at CDOR, plus 0.90% and in the case of an advance required to be made in USD dollars, at LIBOR, plus 1.10%. On June 1, 2023, RTC Canada entered into the First Amendment to the RTC Canada Floor Plan Agreement that changed the interest rate in the case of an advance required to be made in USD dollars to Term SOFR, as defined in the amendment. Effective June 1, 2023, advances required to be made in USD dollars under the RTC Canada Floor Plan Agreement bear interest per annum, payable monthly, at Term SOFR, plus 1.20%. The RTC Canada Floor Plan Agreement expires September 14, 2026. On March 31, 2024, we had approximately $72.5 million CAD outstanding under the RTC Canada Floor Plan Agreement.

 

 

Backlog

 

On March 31, 2024, our backlog of commercial vehicle orders was approximately $2,047.1 million, compared to a backlog of commercial vehicle orders of approximately $4,209.9 million on March 31, 2023. The decrease in our backlog primarily reflects the decreased demand for new Class 8 trucks resulting from production catching up to pent-up demand caused by limited production over the last few years. Our backlog is determined quarterly by multiplying the number of new commercial vehicles for each type of commercial vehicle ordered by a customer at our Rush Truck Centers by the recent average selling price for that type of commercial vehicle. We include only confirmed orders in our backlog. However, such orders are subject to cancellation. In the event of order cancellation, we have no contractual right to the total revenues reflected in our backlog. The delivery time for a custom-ordered commercial vehicle varies depending on the truck specifications and demand for the model ordered. We sell most of our new heavy-duty commercial vehicles by customer special order, and we sell the majority of our medium- and light-duty commercial vehicles out of inventory. Orders from several of our major fleet customers are included in our backlog as of March 31, 2024, and we expect to fill most of our backlog orders during 2024, assuming that the manufacturers we represent can meet their current production schedule.

 

Seasonality

 

Our Truck Segment is moderately seasonal. Seasonal effects on new commercial vehicle sales related to the seasonal purchasing patterns of any single customer type are mitigated by the diverse geographic locations of our dealerships and our diverse customer base, including regional and national fleets, local and state governments, corporations, and owner-operators. However, Aftermarket Products and Services operations historically have experienced higher sales volumes in the second and third quarters.

 

Cyclicality

 

Our business is dependent on a number of factors including general economic conditions, fuel prices, interest rate fluctuations, credit availability, environmental and other government regulations and customer business cycles. Unit sales of new commercial vehicles have historically been subject to substantial cyclical variation based on these general economic conditions. According to data published by A.C.T. Research, in the last ten years, total U.S. retail sales of new Class 8 commercial vehicles have ranged from a low of approximately 187,600 in 2013, to a high of approximately 281,440 in 2019. Through geographic expansion, concentration on higher margin Aftermarket Products and Services and diversification of our customer base, we have attempted to reduce the negative impact of adverse general economic conditions or cyclical trends affecting the Class 8 commercial vehicle industry on our earnings.

 

Environmental Standards and Other Governmental Regulations

 

We are subject to federal, state, and local environmental laws and regulations governing the following: discharges into the air and water; the operation and removal of underground and aboveground storage tanks; the use, handling, storage and disposal of hazardous substances, petroleum and other materials; and the investigation and remediation of environmental impacts. As with commercial vehicle dealerships generally, and vehicle service, parts and collision center operations in particular, our business involves the generation, use, storage, handling and contracting for recycling or disposal of hazardous materials or wastes and other environmentally sensitive materials. We have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with such laws and regulations.

 

Our operations involving the use, handling, storage, and disposal of hazardous and nonhazardous materials are subject to the requirements of the federal Resource Conservation and Recovery Act, or RCRA, and comparable state statutes. Pursuant to these laws, federal and state environmental agencies have established approved methods for handling, storage, treatment, transportation, and disposal of regulated substances with which we must comply. Our business also involves the operation and use of aboveground and underground storage tanks. These storage tanks are subject to periodic testing, containment, upgrading and removal under RCRA and comparable state statutes. Furthermore, investigation or remediation may be necessary in the event of leaks or other discharges from current or former underground or aboveground storage tanks.

 

We may also have liability in connection with materials that were sent to third‑party recycling, treatment, or disposal facilities under the federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, and comparable state statutes. These statutes impose liability for investigation and remediation of environmental impacts without regard to fault or the legality of the conduct that contributed to the impacts. Responsible parties under these statutes may include the owner or operator of the site where impacts occurred and companies that disposed, or arranged for the disposal, of the hazardous substances released at these sites. These responsible parties also may be liable for damages to natural resources. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other materials into the environment.

 

 

The federal Clean Water Act and comparable state statutes require containment of potential discharges of oil or hazardous substances and require preparation of spill contingency plans. Water quality protection programs govern certain discharges from some of our operations. Similarly, the federal Clean Air Act and comparable state statutes regulate emissions of various air emissions through permitting programs and the imposition of standards and other requirements.

 

The Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”), on behalf of the U.S. Department of Transportation, issued rules associated with reducing greenhouse gas (“GHG”) emissions and improving the fuel efficiency of medium and heavy-duty trucks and buses for current model years through 2027. In March 2024, the EPA issued additional rules associated with reducing GHG emissions from medium and heavy-duty trucks and buses for model years 2027 through 2032. In addition, in August 2021, the President of the United States issued an executive order intended to increase fuel efficiency, further reduce GHG emissions and speed up the development of “zero-emission” vehicles. The executive order calls for the EPA and the Secretary of Transportation to adopt new rules and regulations for commercial vehicles starting as early as model year 2027. Similarly, in June 2020, CARB adopted a final rule that is intended to phase out the sale of internal combustion engine commercial vehicles over time by requiring a certain percentage of each manufacturer’s commercial vehicles sold within the state to be “zero-emission vehicles,” or “near-zero emission vehicles,” starting in model year 2024. In July 2023, CARB and various manufacturers of heavy-duty commercial vehicles and engines, including PACCAR, Navistar, Ford, Hino, Isuzu and Cummins, entered into the Clean Truck Partnership, whereby the manufacturers agreed to comply with CARB’s emission requirements where applicable, regardless of whether any entity challenges CARB’s rule-making authority, and CARB agreed to work with manufacturers to provide reasonable lead time to meet CARB’s requirements and before imposing new regulations. In addition, CARB agreed to align its nitrogen oxide emissions rules with the EPA’s, which go into effect starting in model year 2027, and modify certain of its 2024 nitrogen oxide emissions regulations currently in effect, with respect to which manufacturers may provide certain offsets to meet CARB’s emission target in exchange for the ability to sell legacy engines. Since July 2020, a group of seventeen U.S. states and the District of Columbia have entered into a joint memorandum of understanding that adopts at least a portion of CARB’s emissions regulations and commits each of them to work together to advance and accelerate the market for electric Class 3 through 8 commercial vehicles. Six of the states are states where we operate new commercial vehicle dealerships: California, Colorado, Nevada, New Mexico, North Carolina, and Virginia. The signatories to the memorandum all agreed on a goal of ensuring that 100% of new Class 3 through 8 commercial vehicles are zero emission by 2050, with an interim target of 30% zero emission vehicles by 2030. Attaining these goals would likely require the adoption of new laws and regulations and we cannot predict at this time whether such laws and regulations would have an adverse impact on our business. Additional regulations, or CARB’s enforcement of its existing regulations, could result in increased compliance costs, additional operating restrictions, or changes in demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations.

 

We do not believe that we currently have any material environmental liabilities or that compliance with environmental laws and regulations will have a material adverse effect on our results of operations, financial condition, or cash flows. However, soil and groundwater impacts are known to exist at some of our dealerships. Further, environmental laws and regulations are complex and subject to change. In addition, in connection with acquisitions, it is possible that we will assume or become subject to new or unforeseen environmental costs or liabilities, some of which may be material. In connection with our dispositions, or prior dispositions made by companies we acquire, we may retain exposure for environmental costs and liabilities, some of which may be material. Compliance with current or amended, or new or more stringent, laws or regulations, stricter interpretations of existing laws or the future discovery of environmental conditions could require additional expenditures by us, which could materially adversely affect our results of operations, financial condition, or cash flows. In addition, such laws could affect demand for the products that we sell.

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Market risk represents the risk of loss that may impact the financial position, results of operations, or cash flows of the Company due to adverse changes in financial market prices, including interest rate risk, and other relevant market rate or price risks.

 

We are exposed to market risk through interest rates related to our floor plan financing agreements, the WF Credit Agreement, the PLC Agreement and discount rates related to finance sales. Our floor plan debt is based on SOFR and CDOR, the WF Credit Agreement is based on SOFR, the RTC Canada Revolving Agreement is based on CDOR and the PLC Agreement is based on the prime rate. As of March 31, 2024, we had floor plan borrowings and borrowings from WF, BMO and PLC in the amount of $1,773.3 million. Assuming an increase or decrease in SOFR, CDOR or the prime rate of 100 basis points, annual interest expense could correspondingly increase or decrease by approximately $17.7 million.

 

 

ITEM 4. Controls and Procedures.

 

The Company, under the supervision and with the participation of management, including the Company’s principal executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2024, to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to Company management, including the principal executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings.

 

From time to time, we are involved in litigation arising out of our operations in the ordinary course of business. We maintain liability insurance, through self-insurance and third-party excess insurance, including product liability coverage, in amounts deemed adequate by management. However, an uninsured or partially insured claim, or claim for which indemnification is not available, could have a material adverse effect on our financial condition or results of operations. As of March 31, 2024, we believe that there are no pending claims or litigation, individually or in the aggregate, that are reasonably likely to have a material adverse effect on our financial position or results of operations. However, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our financial condition or results of operations for the fiscal period in which such resolution occurred.

 

ITEM 1A. Risk Factors.

 

While we attempt to identify, manage and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. Item 1A, Part I of our 2023 Annual Report on Form 10-K (the “2023 Annual Report”) describes some of the risks and uncertainties associated with our business that have the potential to materially affect our business, financial condition or results of operations.

 

There has been no material change in our risk factors disclosed in our 2023 Annual Report.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

The Company did not make any unregistered sales of equity securities during the first quarter of 2024.

 

A summary of the Company’s stock repurchase activity for the first quarter of 2024 is as follows:

 

Period

 

Total

Number of

Shares

Purchased

(1)(2)(3)

   

Average

Price Paid

Per Share

(1)

   

Total Number

of Shares

Purchased as

Part of Publicly

Announced

Plans or

Programs (2)

   

Approximate

Dollar Value of

Shares that May

Yet be

Purchased Under

the Plans or

Programs (3)

 

January 1 – January 31, 2024

    127,974     $ 43.93 (4)     127,974     $ 76,795,178  

February 1 – February 29, 2024

    44       44.71 (5)     44       76,793,209  

March 1 – March 31, 2024

                      76,793,209  

Total

    128,018               128,018          

 


(1)

The calculation of the average price paid per share does not give effect to any fees, commissions or other costs associated with the repurchase of such shares.

(2)

The shares represent Class A Common Stock and/or Class B Common Stock repurchased by the Company.

(3)

On December 6, 2023, we announced the approval of a new stock repurchase program, effective December 5, 2023, authorizing management to repurchase, from time to time, up to an aggregate of $150.0 million of our shares of Class A common stock and/or Class B common stock.

(4)

Represents 127,969 shares of Class A Common Stock at an average price paid per share of $43.93 and 5 shares of Class B Common Stock at an average price paid per share of $45.00.

(5)

Represents 44 shares of Class A Common Stock at an average price paid per share of $44.71.

 

 

ITEM 3. Defaults Upon Senior Securities.

 

Not Applicable

 

ITEM 4. Mine Safety Disclosures.

 

Not Applicable

 

 

ITEM 5. Other Information.

 

During the three months ended March 31, 2024, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

 

 

ITEM 6. Exhibits.

 

Exhibit Number

 

Exhibit Title

3.1

 

Restated Articles of Incorporation of Rush Enterprises, Inc. (incorporated herein by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q (File No. 000-20797) for the quarter ended June 30, 2008)

     

3.2

 

Certificate of Amendment to the Restated Articles of Incorporation of Rush Enterprises, Inc. (incorporated herein by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q (File No. 000-20797) for the quarter ended June 30, 2023)

     

3.3

 

Rush Enterprises, Inc. Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 000-20797) filed May 21, 2013)

     

3.4

 

First Amendment to Amended and Restated Bylaws of Rush Enterprises, Inc. (incorporated herein by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 000-20797) filed May 24, 2021)

     

10.1

 

First Amendment to Second Amended and Restated Inventory Financing and Purchase Money Security Agreement, dated as of April 9, 2024 by and between Rush Truck Leasing, Inc. and PACCAR Leasing Company (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No. 000-20797) filed April 15, 2024)

     

10.2

 

Second Amended and Restated Promissory Note dated April 9, 2024 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (File No. 000-20797) filed April 15, 2024)

     

31.1*

 

Certification of CEO pursuant to Rules 13a-14(a) and 15d-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

31.2*

 

Certification of CFO pursuant to Rules 13a-14(a) and 15d-14(a) adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

32.1**

 

Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     

32.2**

 

Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     

101.INS

 

XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document

     

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document.

     

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

     

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

     

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase Document

     

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

     

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

 

*

filed herewith

**

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

RUSH ENTERPRISES, INC.

 

 

 
       

Date:         May 10, 2024

By:

/S/ W.M. “RUSTY” RUSH

 
   

W.M. “Rusty” Rush

 
   

President, Chief Executive Officer and

 
   

Chairman of the Board

 
   

(Principal Executive Officer)

 
       
       

Date:         May 10, 2024

By:

/S/ STEVEN L. KELLER

 
   

Steven L. Keller

 
   

Chief Financial Officer and Treasurer

 
   

(Principal Financial and Accounting Officer)

 

 

26

EXHIBIT 31.1

 

CERTIFICATION

 

I, W.M. “Rusty” Rush, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Rush Enterprises, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)          Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

 

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date:         May 10, 2024

By:

/S/ W.M. “RUSTY” RUSH

 
   

W.M. “Rusty” Rush

 
   

President, Chief Executive Officer and

 
   

Chairman of the Board

 
   

Principal Executive Officer)

 

 

 

EXHIBIT 31.2

 

CERTIFICATION

 

I, Steven L. Keller, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Rush Enterprises, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)          Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

 

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date:        May 10, 2024

By:

/S/ STEVEN L. KELLER

 
   

Steven L. Keller

 
   

Chief Financial Officer and Treasurer

 
   

(Principal Financial and Accounting Officer)

 

 

 

EXHIBIT 32.1

 

 

 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with this quarterly report of Rush Enterprises, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, W.M. “Rusty” Rush, President, Chief Executive Officer and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

By:

/S/ W.M. “RUSTY” RUSH

 
 

Name: 

W.M. “Rusty” Rush

 
 

Title:   

President, Chief Executive Officer and Chairman of the Board

 
 

Date:   

May 10, 2024  

 

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

EXHIBIT 32.2

 

 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with this quarterly report of Rush Enterprises, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven L. Keller, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

By:

/S/ STEVEN L. KELLER

 
 

Name:  

Steven L. Kelle

 
 

Title:    

Chief Financial Officer and Treasurer

 
 

Date:    

May 10, 2024  

 

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 
v3.24.1.1.u2
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2024
May 03, 2024
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 31, 2024  
Document Transition Report false  
Entity File Number 0-20797  
Entity Registrant Name RUSH ENTERPRISES, INC.  
Entity Incorporation, State or Country Code TX  
Entity Tax Identification Number 74-1733016  
Entity Address, Address Line One 555 I.H. 35 South, Suite 500  
Entity Address, City or Town New Braunfels  
Entity Address, State or Province TX  
Entity Address, Postal Zip Code 78130  
City Area Code 830  
Local Phone Number 302-5200  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Central Index Key 0001012019  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2024  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Common Class A [Member]    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   61,900,735
Title of 12(b) Security Class A Common Stock, $0.01 par value  
Trading Symbol RUSHA  
Security Exchange Name NASDAQ  
Common Class B [Member]    
Document Information [Line Items]    
Entity Common Stock, Shares Outstanding (in shares)   16,713,423
Title of 12(b) Security Class B Common Stock, $0.01 par value  
Trading Symbol RUSHB  
Security Exchange Name NASDAQ  
v3.24.1.1.u2
Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2024
Dec. 31, 2023